Essential Elements of a Legal Contract – Part 3

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Contracts can be fantastically complicated, or absolutely simple. But without the essential elements being present, they aren’t binding or enforceable. It might be 100 pages long and have cost you $5,000 to have drawn up, but without the essentials you have no deal.

On Monday, I started a series of blog entries on the 10 essential elements that must go into a contract to make it legal. Today we’re looking at, #5, #6 and #7: Signatures, Proper Names and Proper Signers.

Essential Element #5 – All Contracts Must be Signed

Both parties to a contract have to sign it to complete the deal. If just one side signs, it’s not enough.

But when you’ve got people spread out across the country, that’s not always as easy as it sounds. Fortunately, something called “counterpart,” can help you here. Adding a clause permitting counterpart signatures into your contract can allow people to all sign a page, and when those pages are collected together they form one single, signed contract.

Ideally when creating a contract have everyone sign enough copies so that all sides wind up with a fully signed copy. It’s the best proof you’ve got that the contract was agreed, intended and properly entered into.

Here’s a tip: When signing a contract, use a felt-tip pen and blue ink. Why? Because it’s harder for someone to fake your signature with a felt-tip pen. The ink bleeds into the paper and expands. If you are using ball-point, write hard – so your signature makes an impression into the paper. We live in a world of Photoshop, which makes for a lot of potential fraud. In that sense technology has become a blessing and a curse.

Also, many people insist on initialling each page of a contract. I like that, because it makes it harder for someone to switch out a page at a later date with modified terms.

One other tip for contracts: NEVER end a contract with the signature lines alone on a page. Always make sure you drag part of the last paragraph of a contract over to the signature page. That way it’s easy to see the continuity of the documents, and the signatures.

Are fax and email copies acceptable? Sometimes – that depends on the deal. Many people look at a fax copy as evidence the deal was signed so they can proceed with the deal – but still want the original to come back by mail or courier.

Essential Element #6 – Get the Names Right!

It’s important that everyone’s names be included in a contract. If you’re contracting with companies, the full, legal company name needs to be included. Don’t leave off the Corp, Ltd., etc. – because you can accidentally mess up your contract. An improperly-named party can claim that the contract isn’t binding because it didn’t name them properly. All these things seem so small on their own, but when you add them up they can really count against you when trying to make a contract stick.

Essential Element #7 – Proper Signatories

If you are contracting with a business, or if you’re signing on behalf of your own business, make sure that you and the other signers are all authorized to bind the business. If you are contracting with a corporation, the only people who can bind the corporation are the officers – the President, Secretary, Treasurer, Vice-Presidents, etc. Directors can’t bind a corporation. If you’re dealing with an LLC, things are a little different. If the LLC is Manager-Managed, then only the Managers are authorized to sign contracts for the LLC. If the LLC is member-managed, then any of the members can sign.

If you are the one preparing the contract, ask the other side who will be signing, and their title(s). Ask if they will need one signature line or two. Many businesses have language in their Bylaws or Operating Agreements that require two signatures before the deal is binding, so make sure you have that information before you send over anything for review and signature.

When you’re signing a contract, ALWAYS make sure your title is set out under your signature. Why? Because when you sign personally, it could be construed that you were personally entering into the contract -not your business. And that could mean you become personally liable for making sure your side lives up to their terms of the deal.

We’ll finish up with the last three essential contract elements, Clarity, Completeness and Jurisdiction in a couple of days.

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